December housing starts down 4.1% month-over-month; up 8% year-over-year

Housing starts fell in December compared with November. (FYI, housing starts numbers are usually seasonally adjusted.) However, they are up about 8% year-over-year. Keep in mind that we've had abnormally good weather this winter, which is great for home building.

It wasn’t exactly a banner December for the home-building industry.

The nation’s builders started construction on 4.1% fewer homes compared with a month earlier. Construction decreased to a seasonally adjusted annual rate of 657,000 in December, the Commerce Department said Thursday.

But the news wasn’t all gloomy. The main reason for the monthly decline was a more than 20% drop in construction of multifamily homes with at least two units, a part of the market that tends to swing around a lot.

Other data were more positive. Analysts often pay more attention to the single-family sector, which made up more than 70% of housing starts in December. Single-family construction was actually up 4.4% from a month earlier and reached the highest level since April 2010 – a time when builders were ramping up construction in response to a government tax credit for first-time home buyers.

The housing sector is gradually, tentatively, slowly healing after a collapse in prices that started 5 1/2 years ago. There have been some encouraging signs of late, and builders have been growing more optimistic.

But it’s clear that there’s a long way to go. Since 1959, there have been about 1.5 million new homes started per year, on average. Last year, construction was started on only 607,000 homes – the best year since 2008, but still the third-worst year since the government began keeping records.

The clueless Fed

The release of Federal Open Market Committee (FOMC) meeting transcripts from 2006 show how little America's top economic minds understand how leveraged asset bubbles harm the economy:

As the housing bubble entered its waning hours in 2006, top Federal Reserve officials marveled at the desperate antics of home builders seeking to lure buyers.

The officials laughed about the cars that builders were offering as signing bonuses, and about efforts to make empty homes look occupied. They joked about one builder who said that inventory was “rising through the roof.”

But the officials, meeting every six weeks to discuss the health of the nation’s economy, gave little credence to the possibility that the faltering housing market would weigh on the broader economy, according to transcripts that the Fed released Thursday. Instead they continued to tell one another throughout 2006 that the greatest danger was inflation — the possibility that the economy would grow too fast.

“We think the fundamentals of the expansion going forward still look good,” Timothy F. Geithner, then president of the Federal Reserve Bank of New York, told his colleagues when they gathered in Washington in December 2006. ...

The transcripts of the 2006 meetings, released after a standard five-year delay, clearly show some of the nation’s pre-eminent economic minds did not fully understand the basic mechanics of the economy that they were charged with shepherding. The problem was not a lack of information; it was a lack of comprehension, born in part of their deep confidence in economic forecasting models that turned out to be broken.

“It’s embarrassing for the Fed,” said Justin Wolfers, an economics professor at the University of Pennsylvania. “You see an awareness that the housing market is starting to crumble, and you see a lack of awareness of the connection between the housing market and financial markets.”

“It’s also embarrassing for economics,” he continued. “My strong guess is that if we had a transcript of any other economist, there would be at least as much fodder.” ...

The committee consists of the governors of the Federal Reserve and the presidents of the 12 regional banks.

“The speed of the falloff in housing activity and the deceleration in house prices continue to surprise us,” Janet Yellen, then president of the Federal Reserve Bank of San Francisco, said in September.

One builder she spoke with, she said, “toured some new subdivisions on the outskirts of Boise and discovered that the houses, most of which are unoccupied, are now being dressed up to look occupied — with curtains, things in the driveway, and so forth — so as not to discourage potential buyers.” ...

But the Fed’s chairman, Ben S. Bernanke, appears as the most consistent voice of warning that problems in the housing market could have broader consequences.

The general consensus on the board, summarized by Mr. Geithner, was that problems in the housing market had few broader ramifications. “We just don’t see troubling signs yet of collateral damage, and we are not expecting much,” he said at the September meeting.

Mr. Bernanke initially agreed, telling colleagues at his first meeting as chairman, in March, “I think we are unlikely to see growth being derailed by the housing market.”

As the year rolled along, however, Mr. Bernanke increasingly took the view that his colleagues were too sanguine.

”I don’t have quite as much confidence as some people around the table that there will be no spillover effect,” he said. ...

One fundamental reason for this blindness was that Fed officials did not understand how deeply intertwined the housing sector and financial markets had become. They also were convinced that financial innovations, by distributing the risk of losses more broadly, had increased the strength and resilience of the system as a whole.

So, for all the criticism you might give Ben Bernanke, apparently he's the least incompetent of the bunch.

I'll admit I didn't know that the housing bubble would cause a financial crisis. The best I can say for myself is that I expected a failure of Fannie Mae and Freddie Mac, but also expected more diversified financial institutions to be OK.

However, I expect people with Ph.D.s in economics to know a lot more about this stuff than I do. (After all, I'm a software developer, not an economist.) I especially expect it of economists who are supposedly so good at what they do that they get appointed to a post at the U.S. Federal Reserve.

DC-area homes of the 2012 presidential candidates

A bunch of websites are posting photos of the 2012 presidential candidates' homes, probably sparked by this Zillow Blog post. Here are the homes the candidates have in the DC area:

Newt Gingrich
7410 Windy Hill Ct, McLean, VA 22102
Value: $1,284,400

Rick Santorum
10607 Creamcup Ln, Great Falls, VA 22066
Value: $1,305,100

Jon Huntsman
2121 Leroy Pl NW, Washington, DC 20008
Value: $3,303,100

Immediately prior to his purchase of the home, it was used as the residence for contenders on the Bravo reality TV show "Top Chef: Season 7".

Barack Obama
1600 Pennsylvania Ave. NW, Washington, DC 20500
Value: $261,632,300

The deadbeat hasn't paid rent in three years! Zillow.com gets the zip code wrong. It's 20500, not 20006.

Ron Paul
I don't know were Ron Paul lives in the DC area, but he's trying to sell his Texas home over the internet for $63,500 more than Zillow thinks it's worth.

Why you should oppose SOPA and PROTECT IP

PROTECT IP and SOPA are two very similar bills making their way through the U.S. Congress. PROTECT IP is the name of the bill in the Senate and SOPA is the name of the bill in the House of Representatives. This video explains the dangers of these bills:

To help fight SOPA and PROTECT IP, visit americancensorship.org to contact your congressman and senators.

Zillow CEO on housing market

S&P/Case-Shiller Index falls yet again

I was on Christmas vacation last week. Here's some housing news that was released while I was gone:

Home prices fell for the sixth straight month in October, down 1.2% compared with September and 3.4% a year ago, according to the latest S&P/Case-Shiller 20-city index.

The decline was disappointing in light of several other recent reports, which painted a more positive picture of the housing market. ...

tight lending standards and a glut of foreclosures continue to weigh on the housing market, said Pat Newport, a housing market analyst for IHS Global Insight.

With so many homes for sale at distressed prices, the home price numbers come as no surprise, he said.

"The numbers are pretty bad and will get even worse over the next two years," he said.

The 20-city index has dropped every month since April. Since the housing bust began in mid-2006, homes have lost nearly 33% of their value.

CNN Money isn't clear about this, but they are referring specifically to the S&P/Case-Shiller 20-city seasonally-adjusted index.

The Wall Street Journal has a nice little graphic showing the year-over-year home price change measured by different sources:

How to become rich: Choose the right occupation

According to this research paper, these are the career fields of Americans in the top 1% of the income distribution (as of 2005):

• 31% are non-financial executives, managers, or supervisors
• 16% are medical professionals
• 14% are financial professionals, including management
• 8.4% are lawyers
• 4.6% are in technical fields (computers, math, engineering, etc.)
• 4.2% are in skilled sales, excluding real estate and finance
• 3.8% are in blue collar or miscellaneous services
• 3.2% are in real estate
• 3.0% are in non-finance business operations
• 1.8% are professors or scientists
• 1.6% are in arts, media, or sports

So much for the myth from late night infomercial pitchmen that real estate is the path to wealth! The top 1% are ten times more likely to be managers.

The career fields of the super wealthy—the top 0.1%—are similar, but slightly different:

• 43% are non-financial executives, managers, or supervisors
• 18% are financial professionals, including management
• 7.3% are lawyers
• 5.9% are medical professionals
• 3.7% are in real estate
• 3.0% are in arts, media, or sports
• 2.9% are in non-finance business operations
• 2.9% are in technical fields (computers, math, or engineering)
• 2.3% are in skilled sales, excluding real estate and finance

Judging by this list, and what I've posted previously, for enterprising high school or college students who would like a successful career but don't know what they want to study, a finance, accounting, economics, engineering, math, or computer science bachelor's degree followed by a dual MBA/JD would give you a fantastic head start in life. ...But above all else, get that MBA!

How to become rich: Education and marriage

Gallup has researched the difference between the top 1% of Americans and the rest. Not surprisingly, the wealthy are better educated and married:

To better understand who makes up the top 1%, Gallup combined 61 of its nationwide surveys conducted between January 2009 and November 2011. The resulting sample includes nearly 400 adults in households earning $500,000 or more annually, and more than 65,000 in households earning less than that. The official top 1% of American households in 2010 includes those with incomes of at least $516,633, according to data from the Tax Policy Center as reported in The Washington Post.

Advanced Education Separates the 1% From the 99%

Apart from their bank accounts, Gallup finds education to be the greatest difference between the wealthiest 1% of Americans and everyone else. The Gallup analysis reveals that 72% of the wealthiest Americans have a college degree, compared with 31% of those in the lower 99 percentiles. Furthermore, nearly half of those in the wealthiest group have postgraduate education, versus 16% of all others.

More generally, college education is strongly correlated with household income. Nine percent of Americans earning less than $20,000 per year are college graduates; this rises to majorities of adults in all income groups above $100,000. Similarly, few adults in low-income households have postgraduate education, and this rises only into the teens among middle-income adults. But it sharply increases among those earning $100,000 or more, peaking at 49% among those earning between $250,000 and $499,000, and those earning at least half a million.

The educational differences between the nation's "1%" and "99%" exceed all other demographic as well as political differences seen between these groups in the Gallup data. The next-most-significant distinction is marital status, with nearly three-quarters of the very wealthy (73%) being currently married, compared with half of all others (51%). Accordingly, by 49% to 31%, the very wealthy are more likely to have minor children in the household.

The impact of marriage is pretty simple to explain: Two salaries pay more than one. Regarding education, as I've said in the past level of education matters a lot, but what you study is every bit as important. Despite the fact that society indoctrinates high school students to try to attend high-ranking universities, choosing the right college major matters far more than going to the right school.

National Association of Realtors overstated existing home sales by 16.7%

Last week I blogged about the National Association of Realtors overstating existing homes sales over the past five years. At the time we didn't know how much the Realtors overstated the numbers. Now we know they overstated them by 16.7%:

Existing home sales during the housing bust were actually 14.3% worse than previously reported, a revision to Realtors' group numbers shows.

On Wednesday, the National Association of Realtors (NAR) revised home sale counts back to 2007 due to flaws in their original data analysis.

In 2007, there were actually just 5.04 million existing home sales, 11% less than the 5.65 million originally reported. Even worse were 2008 and 2009, when there were 16% fewer sales than originally reported. Sales in 2010 were 15% lower.

"The errors started in 2007 and continued to accumulate over time," said Lawrence Yun, NAR's chief economist. ...

The data is "key to the economic outlook," said Mark Zandi of Moody's Analytics, "and the revisions help to explain the severity of the housing crash." ...

Some industry sources had been critical of the organization's data. In February, CoreLogic charged that NAR data was overestimating sales by 15% to 20%.

When NAR investigated, it found a "notable upward drift" in the numbers compared to other measurements such as courthouse deeds records, said Yun.

For anyone confused about where the 16.7% in the title comes from, the first sentence of the quoted article says sales were 14.3% worse than previously reported, and 100 / (100-14.3) = 16.7.

Updated housing graph

I have updated my national housing graph. My metropolitan area graphs are still nine months out of date.

Housing starts spiked in November

Housing starts are up 24.3% year-over-year:

Home building spiked up in November to the strongest level in almost two years, as record-low mortgage rates and a surge in apartment and condo construction lifted activity.

Housing starts shot up to an annual rate of 685,000 in the month, up 9.3% from October and 24.3% higher than a year earlier. Building activity easily topped predictions of 627,000 starts economists surveyed by Briefing.com were expecting.

Building permits, a closely-watched reading that is less affected by weather than actual starts, also shot up, rising 5.7% from October and 20.7% from the year before to 681,000 homes annually. ...

Both permits and starts were the strongest readings since the spring of 2010, the original deadline for a homebuyer tax credit that sparked a temporary rebound in building and home sales.

I'd like to post some graphs, but the St. Louis Federal Reserve website hasn't updated their data. When they get around to it, the new housing starts graph will be here and the new housing permits graph will be here. The official Commerce Department press release is here.

Mortgage lenders suspend evictions for the holidays

Merry Christmas, delinquents! You get a free pass for about two weeks:

Happy holidays struggling homeowners! Fannie Mae, Freddie Mac and several large mortgage lenders have pledged not to foreclose on delinquent borrowers during the Christmas season.

For homeowners with loans through Fannie Mae and Freddie Mac, the moratorium will run from Dec. 19 to Jan. 2. During this time, legal and administrative proceedings for evictions may continue, but families will be allowed to stay in their homes, Fannie said in a statement.

"No family should have to give up their home during this holiday season," said Terry Edwards, an executive vice president for Fannie Mae.

Among some of the major banks that offer mortgage loans, Chase Mortgage said it will not evict anyone between Dec. 22 and Jan. 2. Wells Fargo will also suspend evictions during that period, but will not shut down its eviction machinery entirely. ...

Bank of America said that it would "avoid foreclosure sales or displacement of homeowners or tenants around the Thanksgiving and Christmas holidays."

The caveat is that these temporary suspensions only apply to loans in a bank's own portfolio. For loans the banks service for others, evictions will still occur.